There are, by my count, now nine contracts that have been signed in which the player a) gets huge money up front with some years tacked on cheaply at the end and b) is not reasonably expected to play out the cheap years on his contract.
I read Elliotte Friedman’s piece a while ago talking about how the players were all upset about the escrow provisions in the CBA. That’s never made any sense to me – I agree with Tom Tango on the point and think that the membership of the PA would probably benefit from some remedial education. The thing that would really drive me nuts if I was a player are the contracts being signed by players that are backloaded with some cheap years tacked on at the end to keep the cap number down.
I’ve been told that many people have a basic sense of fairness that they rely on in evaluating things. This method of evaluation is founded on something other than what the document governing their relationship with someone else says. Having heard this from a variety of non-lawyers, I believe that there may well be some truth to it. If you’re the sort of person who sees the world that way, there’s a pretty strong argument that what the players signing these long-term contracts aren’t treating the collective fairly.
The basic fairness of averaging the salaries contained in a contract for salary cap purposes is that while players might take more from the pool than their cap hit in some years, in other years, they’ll take less. Take Shawn Horcoff as an example. He’s a cap hit of $5.5MM annually. This year he makes $7MM. In a few years, he’ll make $3MM. If you’re a player who has to kick some money back into escrow this year because Horcoff’s salary is greater than his cap hit, you know that in a few years, Horcoff will be eating up more salary cap than he’s taking in salary, which is of benefit to the rest of the players. From the perspective of the players, the entire system is premised on the idea that contracts will be signed in good faith, with an intention to play them out. Uberrima fides.
In the past few years, we’ve seen a number of contracts signed in which there’s a year or two tacked on to the end of the contract at a very cheap rate in order to reduce the cap number down. It’s widely speculated – and seems reasonable to me to think – that these players won’t play out the cheap final years of their contracts. They’ll simply retire before the really cheap years at the end. Vincent Lecavalier, Roberto Luongo, Marian Hossa, Henrik Zetterberg, Chris Pronger, Daniel Alfredsson, Mikka Kiprusoff, Marc Savard and Johan Franzen have all signed deals like that.
What makes these deals unfair to the rest of the players is that these nine guys are sucking up more salary than they take in cap hit right now, but they (presumably) aren’t planning to pay it back to the collective at the end by taking fat cap hits while pulling down small salaries. These guys will pull out large salaries in the present, giving their teams more cap room and playing in the cities that they want to be in but neither they nor their teams will pay the price down the road for their presence now.
I put together a chart to look at what this actually costs. As always, it’s complicated.
OK – explanation of the chart. All of the numbers are in $MM. The first column headed salary is the salary for those players in the 2010-11 season. Cap hit is their cap hit for that season; “Dif” is the difference. Very straightforward. To use Luongo as an example, he’ll be paid $10MM in 2010-11, with a cap hit of $2.273MM. Collectively, those nine players will pull in $21.283MM more in salary next year than they will cost in terms of cap hit.
If you assume that none of these players will play for less than $2MM – which seems entirely reasonable to me – you can put together the following summary of their impact on the system over the next ten seasons:
That’s a pretty staggering number you see at the end – these nine players, assuming that they play until their contracts call for stipends of less than $2MM, will pull in $73.524 than they’ll cost in terms of cap hit. $7.35MM annually, albeit heavily frontloaded.
Why does this matter? Well, that money has to come from somewhere. The players have a fixed piece of the pie. When someone games the system to make his salary exceed his cap hit in the long term, he does it by taking money out of the pockets of the other players.
I’ve struggled with the proper way to do this in terms of figuring out the cost to the collective as a whole, but it seems to me that the $7.35MM figure is the proper one to use in terms of putting a dollar figure on the cost of what these players are doing – it accounts for the fact that the plan was for a system that allowed greater salaries in some years than others. The objectionable part of what the Frontloaded Nine are doing is planning to take out more dollars than they account for in cap hit. On my assumptions, that’s $7.35MM annually that they’re taking from their brethren.
In the grand scheme of things, $7.35MM isn’t a ton of money. If we make the (extremely safe) assumption that the players will be returning money to the owners in 2010-11, the question becomes how much each player is going to be paying so that the Frontloaded Nine can play where they want on terms favourable to their team.
According to the Boston Globe, on last season’s revenues, the players were entitled to $1.492B in salary (I believe that this should be salary and benefits). The owners paid out $1.73B in salary. They were entitled to claw back the difference (which the author somehow calculates at $208MM) from the players. On those numbers, a given player’s contract actually put 88% of the face value into his pocket.
The cost to an individual player for this depends on the amount that gets paid out in escrow. Escrow is basically a regressive tax – you get taxed the same percentage of your income, regardless of the value of your contract. I’ve done the calculations based on the Globe figures of player entitlement to $1.492B in salary to figure out what these contracts are costing the players as a whole per $1MM in salary. If, for example, the players were paid $1.75B in salary, the cost to the players of the contracts signed by the Frontloaded Nine will be $4200.00/$1MM in salary. If you look at the range of likely reasonable outcomes, I think an estimate of $4100.00/$1MM to $4300.00/$1MM is pretty reasonable.
When considering anything NHL related, my first thought is always “…But how does this affect Shawn Horcoff?” How much cash will come out of Shawn Horcoff’s pocket next year so that Vancouver, Detroit, Chicago, Boston, Tampa, Calgary, Philadelphia and Ottawa will have better teams than they otherwise would? To what extent is he subsidizing the decisions made by those players? Well, on my math (and his $6.5MM salary next year), the answer is somewhere between $27K and $28K. Bad enough that Chris Pronger and his wife hated Edmonton – Horcoff will be kicking money into the pot so that they can live somewhere less objectionable.
Will he be able to keep a roof over his family’s head? Most likely. Is it fair that he’s subsidizing lifestyle choices for certain players and so that certain cities can maintain better teams than they otherwise would? I don’t see how you can possibly make that argument.
If I was a member of the NHLPA, particularly if I was a blue collar, lunchpail, three or four year career guy, this would bother to me no end. Escrow is simply something that occurs because the players have agreed that salaries would be a fixed percentage of revenues. It’s undoubtedly part of the deal. A special class of players and teams have hit on a way to have their decisions subsidized by the players as a whole. That would bother me a whole lot more. If this trend grows – and Duncan Keith’s contract is certainly arguable in terms of falling into this class, the amount of tax borne by the players who don’t have these types of deal will increase.
I make no moral judgment of this – it’s a dog eat dog world and these deals are within the rules of the game. This is simply an example of the elite players being able to shift some of the burden of the salary cap to other players – a function of relative bargaining powers. It’s not fair though and, for the vast majority of the NHLPA, negotiating a provision in the next CBA that either requires flat salaries or caps contract lengths would probably be extremely beneficial. I’m broadly in agreement with Tom Benjamin that the NHLPA doesn’t really serve a purpose in a capped NHL – this is just another example of how it pits the players against one another. If I was negotiating the new CBA, I’d have this issue lined as something to give the owners as a win.